In his first appearance before Congress following a testy confirmation vote in the Senate last month, Bernanke offered a relatively somber assessment of the U.S. economy despite recent signs of strong growth.

The country has lost 8.4 million jobs in a little more than two years in the most severe economic downturn since the Great Depression. The Fed chief said job losses were abating, but also acknowledged the recession's toll on American workers.

Bernanke said the U.S. central bank's policy-setting Federal Open Market Committee was prepared to support the economy with extraordinary stimulus for some time.

"The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period," he said, echoing the Fed's most recent policy statement in late January.

Fed officials have suggested they would likely wait several months after removing the "extended period" phrase from their policy statement before proceeding to raise the benchmark overnight interbank interest rate.

U.S. stocks were solidly higher as bank shares benefited from Bernanke's vow to keep rates on hold for a prolonged period, ignoring a surprisingly weak report on new home sales report that highlighted the Fed's predicament.

New home sales slumped more than 11 percent in January even as the central bank's purchase of mortgage-related bonds and a home-buyer tax credit continued to support the market. Many analysts worry things could get even uglier over coming months, after both those programs expire.

"We may be in for a rough ride in housing," said Adam York, economist at Wells Fargo in Charlotte, North Carolina.

Commercial real estate, where defaults are supposed to spike this year, also remains a key concern. Bernanke called it "the biggest credit issue we still have."

Bernanke's reassurances about keeping rate increases at bay also helped U.S. government bonds erase losses, and drove the dollar lower against the euro and Japanese yen. Interest rate futures pared expectations of rate hikes before year-end.

Legislators on both sides of the isle used the hearing to play out the ongoing tug-of-war in Congress over budget deficits. Committee Chairman Barney Frank leaned on Bernanke to argue that the fiscal stimulus measures enacted by Democrats have helped alleviate some of the nation's employment losses.

Republicans, for their part, wanted Bernanke's view on the long-term implications of the government's funding gap, which he said was not on a sustainable path.

"Under current projections, we have a deficit and a debt that will continue to grow," Bernanke said. Still, Bernanke said he did not believe the U.S. credit rating would be downgraded.

The Fed last week surprised markets by raising the discount rate it charges on direct emergency loans to banks.

The increase spurred fears that the central bank was about to embark on a broader push for higher borrowing costs, even though the Fed maintained the federal funds rate, its main policy tool, in a range of zero to 0.25 percent.

The central bank said the discount rate move was an effort to pull back on the measures it had taken to increase liquidity in financial markets, and did not presage tighter monetary policy, a message repeated by Bernanke on Wednesday.

"He stuck to the playbook," said John Canally, an economist at LPL Financial in Boston. "The Fed is trying to back away from its liquidity measures and to reduce its balance sheet somewhat, but the Fed is going keep rates low for an extended period."

Bernanke said, however, that the time would come for tighter policy and he argued the Fed possesses a broad array of tools to remove such accommodation when the time is right.

Among the Fed's options, he said, are reserve-draining transactions with financial institutions. One such program, a "term deposit facility" that would give banks the incentive to park their money at the central bank, could be operational shortly after being tested this spring, the Fed said in its semiannual report to Congress.

Most analysts do not expect the Fed to raise the benchmark federal funds rate until sometime in the second half of the year, at the earliest. Similarly, a Reuters poll released Wednesday showed economists expect the European Central Bank to keep euro zone interest rates on hold until the fourth quarter.

While the Fed and ECB appear to be heading toward a tightening, the situation is less clear in Britain. Bank of England policy-maker Adam Posen told Reuters Insider that the BoE would expand its quantitative easing program "if we have to."

Acknowledging congressional efforts to overhaul financial regulation in the wake of a severe crisis, Bernanke urged lawmakers to preserve the confidentiality of banks who borrow from the Fed's emergency discount window. However, he added that officials would support disclosing borrowing at other special lending facilities, though with a lag.

He defended the central bank's role in bank supervision, which is under threat from key proposals in the Senate, saying information gleaned from overseeing banks was critical in helping guide its response to the crisis.